MERGERS, ACQUISITIONS AND FINANCIAL RESULTS

Safaricom's Share Price in Gradual Rise

Safaricom's share price has slowly been rising ahead of next week's announcement of the firm's half- year earnings following the drop in the share price since August when the tariff wars began.

The publicly listed information technology firm is expected to release its half-year results for the period ended August next Wednesday, though impact of the current price war on the firm's earnings is expected to manifest more clearly in the nine-months period ending in November.

Since August, when the tariff wars began, the firm's share price has lost ground touching a low of Sh4.30 before crawling to the current level of Sh4.85. Analysts said recovery of the stock is being driven by speculation over the company's expected performance.

Kestrel Capital, a local investment bank with a heavy portfolio of international clients, downgraded the company's share price from Sh6.20 to Sh4.85 at the onset of the price wars which saw calling rates drop by half.

Eric Musau, a financial analyst at African Alliance Investment Bank, said most players had given the stock a valuation of between Sh4.50 and Sh4.85 since the August price cuts.

A key indicator that analysts will be looking for on Wednesday is the impact the price reduction has had on the Average Revenue Per User (ARPU).

"The issue will be revenues and margins," said Johnson Nderi, an analyst at Suntra Investment Bank. Income from airtime sales contributes up to 80 per cent of Safaricom's annual revenues. The cost of on-net voice calls dropped to Sh3 per minute from Sh8 in August.

Voice calls are expected to fall further in 2011 as the industry regulator, Communications Commission of Kenya, further lowers cross-network connection fees, which were the biggest barrier to bringing down costs.

Musau said the data market and the mobile money transfer service, M-Pesa, might cushion Safaricom's ARPU from declining further. He estimated that ARPU from selling data is likely to increase between 10 and 15 per cent while that of the M-Pesa is likely to increase between 15 and 20 per cent. Data is considered to be the next battleground as internet enabled phones become more affordable and their capabilities increase.

Safaricom has created a new department, Strategy and New Business Development, whose brief includes scouring for buyout opportunities, mostly in the data market, underlining its intention to grow the data business. Nderi said the firm's decision to go deeper into the data market has seen the share price's slow rise to just shy of the Sh5 mark.